The Financial Conduct Authority (FCA) has published Consultation Paper CP25/10, outlining proposals to reform the prudential framework for FCA-regulated investment firms. These proposals aim to deliver a more proportionate, clear and tailored capital regime that better reflects the business models of non-bank financial institutions.
Why CP25/10 Matters
Investment firms operate with diverse business models, often distinct from those of credit institutions. Historically, they have been subject to capital requirements derived from the UK Capital Requirements Regulation (UK CRR), rules originally designed for banks.
This has presented a mismatch between regulatory burden and actual risk, leading to unnecessary complexity. CP25/10 seeks to resolve this by removing references to UK CRR within MIFIDPRU 3 (the FCA’s prudential sourcebook for MiFID investment firms) and introducing a standalone set of capital rules tailored specifically for investment firms.
The move is particularly relevant for firms where operating models may not align with traditional banking-sector assumptions.
What the FCA Is Proposing
At the core of CP25/10 is the simplification and redefinition of capital requirements for FCA-authorised investment firms. Key proposals include:
- Removing UK CRR References: The FCA aims to eliminate requirements that were designed for banks and are largely irrelevant to investment firms. This shift would significantly reduce the legal text in MIFIDPRU 3 by approximately 70%, making the rules easier to understand and apply.
- Introducing a Standalone Capital Definition: A simplified, FCA-specific definition of capital will be introduced, providing investment firms with a clearer, more predictable understanding of how their capital resources are calculated and assessed for regulatory purposes.
- Streamlining Permissions and Reductions: The proposal also covers transitional provisions and guidance to help firms adjust from the old framework to the new one, including clarifications on own funds and the treatment of instruments issued prior to the rule changes.
Key Benefits for Firms
The changes proposed under CP25/10 are expected to deliver a number of benefits for investment firms, including:
- Improved Clarity and Usability: With less reliance on CRR cross-referencing, the new rules are easier to navigate and interpret, particularly for compliance professionals without a banking regulatory background.
- Reduced Compliance Burden: By removing rules that are irrelevant to investment firms, the FCA expects firms to benefit from lower compliance costs and fewer administrative hurdles.
- Better Alignment with Business Models: The new framework reflects the structure, scale and risk profile of typical investment firms, helping ensure regulatory capital is proportionate and practical.
The simplification will also support those managing AML audits, RegData submissions, or navigating sector-specific regimes like claims management or the upcoming DORA regulation in the UK.
Strategic Implications for the Sector
This is more than just a regulatory housekeeping exercise, it is a strategic opportunity for firms. Simplifying capital definitions and removing banking-centric terminology will allow compliance and finance teams to:
- Make more informed decisions around capital planning;
- Understand and anticipate supervisory expectations more easily; and
- Allocate resources more efficiently for growth and innovation.
It also represents a continued evolution of the UK’s bespoke regime for investment firms under IFPR, reinforcing the FCA’s commitment to targeted, risk-based supervision.
Consultation and Next Steps
The FCA is seeking feedback on CP25/10 from a broad range of stakeholders, including investment firms, industry bodies, legal advisors, and compliance specialists. The consultation period is open until 12 June 2025, and responses can be submitted via the FCA’s online portal, by email, or by post.
Following the consultation, the FCA intends to publish a final policy statement in the second half of 2025. Subject to feedback, the updated rules would come into force on 1 January 2026.
How Can Complyport Help?
At Complyport, we support investment firms in understanding and implementing regulatory change with confidence. Our advisory services are built around providing pragmatic, tailored compliance solutions.
We can assist you with:
- Gap Analysis: Assess your current capital framework against the CP25/10 proposals.
- Capital Instrument Review: Evaluate legacy instruments and advise on transitional compliance.
- MIFIDPRU Interpretation and Implementation: Clarify and operationalise key aspects of the standalone capital rules.
- FCA Engagement: Support your CP25/10 consultation response or correspondence with the FCA.
- Training and Briefings: Equip your compliance and finance teams with the knowledge to apply the new framework.
- RegData and KYC Managed Services: Help you streamline reporting and onboarding workflows.
- Claims Management and ESG Advisory: Assist niche regulated sectors in aligning capital rules with thematic risks.
Book a meeting with one of our Subject Matter Experts to ensure you remain compliant and well-positioned in the evolving UK regulatory landscape.
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